The Coca-Cola Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

EQUITY METHOD INVESTMENTS

EQUITY METHOD INVESTMENTS

12 Months Ended

Dec. 31, 2017

EQUITY METHOD INVESTMENTS [Abstract]

Our consolidated net income includes our Company's proportionate share of the net income or loss of our equity method investees. When we record our proportionate share of net income, it increases equity income (loss) — net in our consolidated statements of income and our carrying value in that investment. Conversely, when we record our proportionate share of a net loss, it decreases equity income (loss) — net in our consolidated statements of income and our carrying value in that investment. The Company's proportionate share of the net income or loss of our equity method investees includes significant operating and nonoperating items recorded by our equity method investees. These items can have a significant impact on the amount of equity income (loss) — net in our consolidated statements of income and our carrying value in those investments. Refer to Note 17 for additional information related to significant operating and nonoperating items recorded by our equity method investees. The carrying values of our equity method investments are also impacted by our proportionate share of items impacting the equity investee's AOCI.

We eliminate from our financial results all significant intercompany transactions, including the intercompany portion of transactions with equity method investees.

The Company's equity method investments include, but are not limited to, our ownership interests in CCEP, Monster, AC Bebidas, Coca-Cola FEMSA, S.A.B. de C.V. ("Coca-Cola FEMSA"), Coca-Cola HBC AG ("Coca-Cola Hellenic"), and Coca-Cola Bottlers Japan Inc. ("CCBJI"). As of December 31, 2017, we owned approximately 18 percent, 18 percent, 20 percent, 28 percent, 23 percent, and 17 percent, respectively, of these companies' outstanding shares. As of December 31, 2017, our investment in our equity method investees in the aggregate exceeded our proportionate share of the net assets of these equity method investees by $9,932 million. This difference is not amortized.

A summary of financial information for our equity method investees in the aggregate is as follows (in millions):



Year Ended December 31,¹	2017		2016		2015
Net operating revenues	$	73,339	$	58,054	$	47,498
Cost of goods sold	42,867		34,338		28,749
Gross profit	$	30,472	$	23,716	$	18,749
Operating income	$	7,577	$	5,652	$	4,483
Consolidated net income	$	4,545	$	2,967	$	2,299
Less: Net income attributable to noncontrolling interests	120		78		65
Net income attributable to common shareowners	$	4,425	$	2,889	$	2,234
Equity income (loss) — net	$	1,071	$	835	$	489

¹The financial information represents the results of the equity method investees during the Company's period of ownership.



December 31,	2017		2016
Current assets	$	25,023	$	19,586
Noncurrent assets	66,578		58,529
Total assets	$	91,601	$	78,115
Current liabilities	$	17,890	$	16,125
Noncurrent liabilities	29,986		25,610
Total liabilities	$	47,876	$	41,735
Equity attributable to shareowners of investees	$	41,773	$	35,204
Equity attributable to noncontrolling interests	1,952		1,176
Total equity	$	43,725	$	36,380
Company equity investment	$	20,856	$	16,260

Net sales to equity method investees, the majority of which are located outside the United States, were $14,144 million, $10,495 million and $8,984 million in 2017, 2016 and 2015, respectively. The increase in net sales to equity method investees in 2017 was primarily due to our acquisition of equity method investments in CCEP and AC Bebidas, as well as the integration of Coca-Cola West Co., Ltd. ("CCW") and Coca-Cola East Japan Co., Ltd. ("CCEJ") to establish CCBJI in 2017. Refer to Note 2. Total payments, primarily marketing, made to equity method investees were $930 million, $946 million and $1,380 million in 2017, 2016 and 2015, respectively. In addition, purchases of beverage products from equity method investees were $1,298 million, $1,857 million and $1,131 million in 2017, 2016 and 2015, respectively. The decrease in purchases of beverage products in 2017 was primarily due to reduced purchases of Monster products as a result of North America refranchising activities. Refer to Note 2.

If valued at the December 31, 2017 quoted closing prices of shares actively traded on stock markets, the value of our equity method investments in publicly traded bottlers would have exceeded our carrying value by $8,504 million. However, the carrying value of our investment in CCEP exceeded the fair value of the investment as of December 31, 2017 by $196 million. Based on the length of time and the extent to which the market value has been less than our cost basis; the financial condition and near-term prospects of the issuer; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value, management determined that the decline in fair value was temporary in nature. Therefore, we did not record an impairment charge.

Net Receivables and Dividends from Equity Method Investees

Total net receivables due from equity method investees were $2,053 million and $1,696 million as of December 31, 2017 and 2016, respectively. The total amount of dividends received from equity method investees was $443 million, $386 million and $367 million for the years ended December 31, 2017, 2016 and 2015, respectively. The amount of consolidated reinvested earnings that represents undistributed earnings of investments accounted for under the equity method as of December 31, 2017 was $4,471 million.